Commentary: China’s Great Strides in ESG This Year, and What the Future Holds

China has made significant strides in Environmental, Social, and Governance (ESG) disclosure, driven by various guidelines from both central and local governments as well as stock exchanges in 2024. The most notable policy development is the mandatory ESG information disclosure for A-share listed companies. The China Securities Regulatory Commission (CSRC) issued ESG reporting guidelines, effective in May 2024, requiring key index-listed companies to disclose their ESG data by 2025. Over 2,200 A-share listed companies have already released their ESG reports for 2023, accounting for about 40% of all A-share companies [para. 1][para. 2].

The Ministry of Finance (MOF) has also introduced the Basic Guidelines for Corporate Sustainability Disclosure, aligning with the International Sustainability Standards Board (ISSB) framework but emphasizing dual materiality. These guidelines lay out a roadmap to establish a national sustainability disclosure system by 2030, focusing on governance, strategy, risks, opportunities, and indicators [para. 2][para. 3]. The Hong Kong Stock Exchange has also echoed these developments by aligning its ESG reporting requirements with ISSB standards, set to take effect in 2025 [para. 3].

Climate transition remains a priority in ESG policies, with various directives aimed at promoting green transformation. Central bodies like the State Council push for carbon emission evaluation systems, while the PBOC and other ministries have put forward plans to enhance green finance, strengthening mechanisms based on information disclosure. Financial innovations like carbon emission reduction loans have been supported, guiding financial institutions to issue over 1.1 trillion yuan in loans covering more than 6,000 entities [para. 4][para. 5].

China's carbon market has seen policy advancements, including the restart of the national voluntary greenhouse gas reduction trading market and an expansion plan covering industries like cement and steel [para. 6]. Meanwhile, ministries have integrated ESG into their frameworks, promoting sustainable finance and enhancing the ESG governance performance of institutions. Local governments, such as in Shanghai and Beijing, have issued plans to support ESG capabilities, underscoring its importance in promoting high-quality development [para. 6][para. 7][para. 8].

Trade compliance is becoming a new driver of ESG, expanding its focus from capital markets to real economic activities. As the EU implements rigorous ESG regulations, Chinese companies, especially in export-oriented sectors, are urged to adopt ESG management systems to maintain competitiveness. This has led to a higher ESG rating for China's new energy firms compared to the general market [para. 9][para. 10]. Companies involved in international operations need to address ESG considerations as part of risk management and legal compliance, as highlighted by the newly released ESG management guidelines for foreign contractors [para. 10].

Looking ahead to 2025, emphasis will remain on information disclosure and transition finance as ESG continues to be crucial for trade compliance. Key areas for attention include ensuring the effective implementation of ESG reporting guidelines, developing clear transition finance standards, and responding to trade compliance demands driven by international regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD). These developments signify the ongoing integration of ESG into broader economic and trade frameworks in China [para. 11][para. 12][para. 13].